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In the midst of anxiety over the recent commodities market crash, Agnico-Eagle Mines has invested in three junior silver and/or gold companies in the space of just over a month. Is now the time to buy?
Gold‘s abrupt mid-April crash did a number on the commodities sector, particularly silver, which fell 17 percent over the course of two days in the wake of the yellow metal’s losses. While these dramatic price drops were initially met with alarm, in some cases anxiety has given way to optimism. For instance, Michael Gray, an equities analyst at Macquarie Capital Markets, asserted in a recent interview with The Gold Report that now is the time for investors to buy into “the best companies … at what seem to be fire sale prices.”
But it’s not just investors who can benefit from today’s low prices. As is being proven by Agnico-Eagle Mines (TSX:AEM,NYSE:AEM), a gold and silver producer that has garnered three-quarters of its current reserves by acquiring small stakes in junior miners, larger mining companies that are able to use today’s lower prices to invest in successful junior companies also have a good chance at making a profit.
The investments begin
Midway through March, Agnico-Eagle agreed to pay $12.96 million to subscribe for 9,600,000 common shares and 4,800,000 warrants of ATAC Resources (TSXV:ATC), a Yukon-based exploration company developing Canada’s only Carlin-type gold discoveries. That represents “8.48% of the issued and outstanding Common Shares on a non-diluted basis and 12.21% of the Common Shares on a partially diluted basis,” according to Agnico’s press release.
Just a few weeks later, on April 9, the company made a similar investment, subscribing to 26,966,292 common shares and 18,876,404 warrants of Sulliden Gold (TSX:SUE), which is focused on bringing its Peru-based gold-silver project into production, for $24 million. This agreement will give Agnico-Eagle 9.96 percent of Sulliden’s issued and outstanding common shares on a non-diluted basis and 15.83 percent of its common shares on a diluted basis.
Agnico-Eagle not fazed by market crash
While gold’s plunge pushed many miners to reconsider their strategy, Agnico appears not to have missed a beat. On April 23, the company made yet another investment, arranging to pay $4.75 million for 3,125,000 warrants and 6,250,000 common shares of Kootenay Silver (TSXV:KTN) through a non-brokered private placement. That represents 9.96 percent of Kootenay’s issued and outstanding shares on a non-diluted basis and 14.23 percent of its common shares if the warrants are exercised.
The press releases for each of these transactions state that the acquisitions were made “for investment purposes.” However, comments made to The Globe and Mail by Sean Boyd, president, CEO and director of Agnico-Eagle, indicate that the reasoning behind the acquisitions was a little more complex than that. He told the newspaper, “[t]his is, despite the volatility, a time of opportunity, and we’ve been on record saying it’s not a time to sit on your hands, because you have to think about this business long-term.”
“We think the valuations are very attractive and now is the time to be doing these things,” he explained, also commenting to the Financial Post, “[w]e think [the price drop is] an over-reaction in the market. We just see it really as a time of opportunity.”
“It clearly works”
Speaking to The Globe and Mail about the three-quarters of reserves that Agnico gained through previous small investments, Boyd noted, “[w]e didn’t go out and physically buy all of those ounces, we bought projects that we expanded sometimes four and fivefold to give us those ounces. So, it clearly works.”
With that in mind, investors would do well to keep an eye not only on Agnico-Eagle, but also on what other junior companies may see investment interest from majors.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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